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Abstract Institutional investors have constituted a main party in China’s security market. However, existing literature is only concerned with the effects of the institutional investor on stock market stability and corporate governance, but with little focus on the effect on stock liquidity. Based on Stoll(2000), the paper distinguishes two categories of the institutional investor influence on the stock liquidity, i.e. trading hypothesis and information hypothesis, and tests these two hypothesizes based on the high frequency transaction data of China’s stock market. It shows that the institutional investor can not only affect stock liquidity through information hypothesis, but also can affect stock liquidity through trading hypothesis. This means that we should decrese information friction through improving information disclosure and reducing inside trading, and we should also reduce real
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Received: 20 February 2012
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Corresponding Authors:
WANG Qian yuan
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2012, Vol. 1 
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